Firms Avoid Brazil as a Supplier

From the WSJ, this article sheds some light on what a lot of people who have been invested in Brazil for a long time are now planning for their supply chains going forward after the last year’s deforestation ‘boom’ in Brazil. Many companies are now looking to reduce their risk in the country and some interesting developments will ensue in 2020.

— (Edited)

Brazil’s accelerating deforestation has sparked a broad effort to shake up supply chains as a way to fight against land-clearing and achieve environmental goals.

Nestle SA, which aims to eliminate deforestation from its supply chain over the next three years, has stopped buying Brazilian-produced soybeans from agricultural trading firm Cargill Inc. after a review couldn’t trace the oilseeds back to specific plantations, raising concerns that they were produced on converted land.

Hennes & Mauritz AB, which owns retailer H&M, said in September it no longer would buy leather from Brazilian producers until suppliers could prove their livestock weren’t raised or fed via deforested areas. VF Corp., which makes Timberland and Vans shoes, announced a similar prohibition on Brazilian leather, which has accounted for about 5% of the company’s leather supply.

Cargill, one of the world’s top soybean exporters and processors, said it is rolling out new technologies to analyze and predict land-clearing activities, and urging farmers to maximize existing fields rather than clear new land. The company in June pledged to invest $30 million in new approaches after acknowledging it and other food companies wouldn’t meet a goal to eliminate deforestation in major supply chains by 2020.

“We believe we have a strong ethical compass, and we have the obligation to act,” said Ruth Kimmelshue, Cargill’s supply chain and sustainability chief. Nestle’s shift didn’t significantly impact Cargill’s financials, she said.

Caisse de depot et placement du Quebec, which manages $247 billion for dozens of pension and insurance plans, in October said it had sold its position in Brazilian meat giant JBS SA after environmental groups criticized the money manager for its estimated $32 million investment. A firm spokesman said the decision followed an analysis of the meat producer’s practices.

JBS said it is committed to ending deforestation while improving the livelihoods of farmers. “We urge those who share the common goal of ending deforestation to seek solutions rather than criticism,” a spokesman said.

Brazil’s President Jair Bolsonaro, who took office at the beginning of this year, has exhorted his country’s farmers to expand. Brazilian farmers are putting more land to the plow as the country’s exports of soybeans, corn and beef have soared, in part because Chinese tariffs on U.S. farm goods have helped make Brazilian crops and meat cheaper.

The rate of deforestation in Amazon states this year hit its highest level since 2008, according to Brazilian government data released in November, with nearly 4,000 square miles of rainforest lost over the 12 months ended in July 2019.

In response, some companies are trying to shield well-known brands from being linked to environmental degradation. Environmental sustainability increasingly informs consumers’ shopping decisions, pushing brands to scrutinize how basic ingredients and materials are produced.

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Emerging Markets Insights

a blog by Frontier Strategy Group

longandvariable

A blog on macroeconomics and public policy by Tony Yates.

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